How do we rebuild shareholder trust on executive pay

Appendix 1: Productivity Commission final
report on executive remuneration
Productivity Commission
recommendations
What this means / PwC view
1. ASIC should confirm that electronic • No material impact.
voting is legally permissible without the
need for constitutional amendments.
15. The Corporations Act should be • This is one of the more material recommendations and is
amended such that:
likely to discourage companies from a<strong>do</strong>pting innovative and
– where a company’s remuneration company-specific remuneration plans that deviate from traditional
report receives a “no” vote of 25% or remuneration plans for fear of a high “no” vote.
more, the board should be required • The importance of <strong>shareholder</strong> engagement will increase
to explain in its subsequent report as companies will need to understand what aspects of their
how <strong>shareholder</strong> concerns <strong>we</strong>re remuneration practices are being voted <strong>do</strong>wn which is not clear by
addressed and, if they have not been, a “no” vote on the entire remuneration report. These issues may
the reasons why
also differ from investor to investor.
– where the subsequent remuneration • The re-election resolution has the potential to cause substantial
report receives a “no” vote of 25% instability and may discourage investors from voting “no” on the
or more, a resolution be put that remuneration report. In addition, <strong>shareholder</strong>s that submit their
the elected directors who signed votes prior to the AGM are placed in a difficult position because
the directors report for that meeting they need to vote on the re-election resolution not knowing whether
stand for re-election at an EGM. this resolution will be activated and, if it was activated, the extent of
Notice of the re-election resolution the “no” vote.
would be contained in the meeting • PwC <strong>do</strong>es not believe that there is any reason for change in this
papers for that AGM. If this resolution area. This is because the non-binding vote on remuneration
is carried by more than 50% of
reports is already working effectively as seen by the fact that the
eligible votes, the board would be vast majority of companies who receive a significant “no” vote
required to hold an EGM within
address any issues the following year. In addition, <strong>shareholder</strong>s
90 days.
elect directors to act on their behalf in terms of determining the
company’s strategy, which includes the remuneration strategy. If
<strong>shareholder</strong>s are not comfortable that the directors are acting in
their best interests, there is already a mechanism in place not to
re-elect that director when they present themselves for re-election
which occurs every three years.
• That said, PwC is supportive of the first part of the Productivity
Commission’s recommendation as this promotes greater
<strong>shareholder</strong> engagement and consultation.
• PwC is not supportive of the second part of the recommendation
for the reasons noted above.
16. If the ASX <strong>do</strong>es not give effect to • Requirements will be more stringent as they will be legislated as
recommendations 3 or 11 and / or
opposed to some of the recommendations that have currently been
the ASX Corporate Governance
put forward on an “if not, why not” basis.
Council <strong>do</strong>es not give effect to
recommendations 2 or 10, the
Australian Government should give
consideration to putting into effect
the intent of those recommendations
through legislative means.
1. There should be a review of the
• PwC supports the review process.
corporate governance arrangements
that emanate from the Australian
Government’s response to this report.
This should be conducted no later than
five years from the introduction of the
new arrangements.
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| PricewaterhouseCoopers Executive Remuneration – Fourth Edition 2010